Questions and Answers of Taxation Decision Makers

If a taxpayer has $40,000 of employee salary in 2019, how much will be withheld for the Social Security and Medicare taxes?
Sally and Jim are married and have taxable income in 2019 of $700,000. If they could file their income tax as single individuals, each of them would have taxable income of $350,000. Do they have a
Go to the IRS website and click on About IRS, and then click on Tax Statistics. What sub headings appear under the “Statistics of Income”?
Carol has recently incorporated her sole proprietorship and is considering making an S election. The corporation has $200,000 of gross revenue and expenses of $75,000 before Carol’s salary. She
Jeremy is setting up a service business. He can either operate the business as a sole proprietorship or he can incorporate as a regular C corporation. He expects that the business will have gross
John and Martha are planning to be married. Both are professionals each with taxable incomes of $360,000 annually. They are deciding on a wedding date. They have two dates to choose from: December
What is the maximum income tax rate that applies to the employee salary, the employment tax rate(s) on the salary, and the capital gain rate(s) on the long-term capital gains, for these four single
Search the IRS website for TCE. Briefly describe this program. Consult the IRS website (www.irs.gov).
Go to www.taxsites.com/state-links.html and locate your state. Find and read your state’s filing requirements for forming an LLC and write a one-paragraph summary of these requirements. Does your
Locate a recent appellate court case that has reversed a Tax Court decision regardinga Partnership or S corporation tax issue.a. Summarize the facts, issues, and conclusions of the case.b. Explain
Two years ago, Herbert, a widower, made a gift of marketable securities to his 35-year-old daughter, Sabrina, on which he paid a federal gift tax of $3 million. When Herbert died in December 2017,
When Chet died on March 12, 2018, he owned $900,000 in stock of ABC Corporation and $100,000 in City of Omaha bonds. The ABC Corporation declared a cash dividend on March 1 that was payable to
Identify the issues or problems suggested by the following situations. State each issue as a question.Jorge is a resident and citizen of Spain. He invests $500,000 in Miami Beach real estate. When
For 2018–2025, Congress increased the lifetime exclusion amount for estate and gift taxes to $11,180,000 with inflation indexing. What (if any) changes do you think Congress might make in this area
Oscar (age 70) and Maggie (age 60) were married and jointly owned a personal residence valued at $3,800,000 when Oscar died in 2018. Oscar also owned stocks valued at $6,700,000; an art collection
When Godfrey died in 2018, his assets were valued as follows:The executor sold the stock two months after the decedent’s death for $5,200,000. The bonds were sold seven months after the
Your client, Ted, would like your assistance in selecting one of the following assets to give to his 16-year-old daughter.The corporate stock pays only $100 in dividend income each year but has
Julie had a gross estate of $13 million when she died in 2018. Her funeral expenses were $26,000; her administrative expenses were $30,000; her charitable deduction was $350,000; and her marital
Sondra and Jason, a wealthy married couple, won $96 million in a 2018 Power ball drawing. They decided to share some of this new wealth immediately with some of their friends and family. They paid
Steven had a taxable estate of $14,850,000 when he died in 2018. If he had no prior taxable gifts, what is his net estate tax liability?
Benjamin has made no previous taxable gifts. Determine his gift tax if he makes $14,000,000 (after annual exclusions) in taxable gifts in 2018.
Cherry’s 62-year-old widowed mother, Nancy, had to quit working for health reasons and now her only income is $1,100 per month from Social Security. Cherry recently became partner of a law firm and
Jessica owns investment land currently worth $8,000,000. She paid $3,000,000 for the land 10 years ago. She expects that the land will probably increase in value to at least $12,000,000 before she
Samson’s gross estate was valued at $3 million when he died. Determine the value of his taxable estate before any credits using the following information:• The executor’s fees were $16,000.•
Cindy, an 18-year-old full-time student, has $5,000 interest income from a trust established by her grandparents. Cindy also earned $6,000 working at a part-time job. She lives at home with her
Lenny, age 12, has $5,500 interest income from a trust established by his uncle. This is Lenny’s only source of income for 2018.a. What is Lenny’s taxable income and how much income tax does he
Joan is 15 and a dependent of her parents. If she has $4,900 income from her trust fund this year, how much income tax will she pay for 2018 if her parents have $150,000 of taxable income?
On January 15, 2018, Eileen, age 24, receives stock worth $30,000 as a gift from her parents. Her parents jointly purchased the stock six years ago for $14,000. During the year, Eileen receives
During 2018, Cherie gives $34,000 cash to her daughter, Helen, and a remainder interest in investment land to her sister, Silvia. The remainder interest is valued at $40,000. In the same year, John,
In 2018, Marah gives $20,000 cash to Sam, $60,000 of stock to Craig, and $100,000 of bonds to Lynn. In the same year, Marah’s husband, Bryan, gives land valued at $120,000 to Jerry.a. What are
Ginny made the following gifts during 2018. Her husband, Ken, made no gifts during the year.• Gift of land valued at $250,000 to her husband• Gift of $20,000 in stock to her daughter• Gift of
John gave $32,000 to each of his 10 grandchildren this year. Lisa, his wife, made no gifts during 2018.a. How much are John’s taxable gifts if gift splitting is not elected?b. How much are John’s
Which of the following are completed gifts? Determine the value of each gift before any exclusions?a. In March, Stephanie deposits $40,000 cash into a joint checking account for herself and her
Determine the taxable gift for each of the following transfers made in 2018.a. In February, Cynthia transferred $200,000 into a revocable trust. In October, the trustee distributes $18,000 of income
Which of the following are completed gifts? How much is the value of each gift before any exclusions?a. Hughlene sold stock worth $90,000 to her son for $30,000.b. Ken deposits $16,000 into a savings
Mary is John’s surviving spouse. He used $450,000 of his gift and estate tax exclusion for his lifetime gifts and his estate used $2,300,000 of his estate tax exclusion in closing his estate in
Determine the credit for the gift and estate tax exclusion if the indexed exclusion in 2019 is $11,300,000.
Five years before his death, Troy purchased a $8 million whole life insurance policy on his life and named his son, Don, the beneficiary. Shortly after purchase, Troy transferred the policy to an
Explain the basic provisions of a Section 529 qualified tuition plan
Explain why Congress added the kiddie tax provisions and which taxpayers are affected by it.
What is the lifetime unified credit amount for 2018 and its related exclusion equivalent?
Lorraine created a trust by transferring $500,000 of stock and bonds into it on January 1, year 1. The trust is to provide her mother with income for her lifetime, with the remainder interest going
According to the provisions of the decedent’s will, the following disbursements were made by the estate’s executor:1. Payment of the decedent’s funeral expenses2. Payment of a charitable
Which of the following transactions is a taxable gift?a. Mack transfers $5,000 to his favorite political organization.b. Sonia gives $25,000 in stocks to her church.c. Veronica gives $25,000 to her
Which of the following transfers is a taxable gift?a. Alex sold land to an unrelated party for less than its fair market value because he needed cash in a hurry.b. After a friend’s death, Nicole
Marta placed $50,000 into a savings account in her name and the name of her son. Later this year, the son withdraws $17,000 from the account. Marta made no other gifts to her son this year. Marta has
John Forsythe (SSN 555-55-5555) began a custom cabinet manufacturing business, John’s Cabinets (EIN 86-1122334 and Business Code 321000), July 1, 2013. John incorporated the business, and the
The Rite-Way Plumbing Company began business March 1, 2014 in Sarasota. Its business address is 124 Division Lane, Sarasota, FL 33645. Its employer identification number is 69-3456789. Its principal
Go to the IRS website (www.irs.gov) and print out copies of Schedule C for Form 1040, Schedule SE, and the first page of Form 1040 for 2017. Using the information in problem 25, complete these
Walter Williams, a travel writer, has worked for a well-known publication for a number of years as a private contractor. Last year a friend suggested he become an S corporation, but he failed to make
An S corporation shareholder has contacted you for advice. His S corporation is going to pass a very large loss through to him that would otherwise offset other income, except for the fact that he
Bob is a 50 percent owner of Barco Enterprises. During 2018, Barco earned $80,000 in net income after subtracting Bob’s $50,000 salary. Bob also withdrew $20,000 from Barco during the year. Bob
Roberto is single and has taxable income of $530,000 in 2018. As a 25 percent partner in a partnership that produces $820,000 of ordinary income from manufacturing a product, his share of partnership
Lynn, who is single, is allocated $500,000 of income and $790,000 of deductions in 2018 from ABC Partnership. How much of this loss can Lynn deduct in 2018 and what does she do with the excess loss?
The Snap-It-Open Corporation incorporated and began operations on January 15, 2017. Its address is 3701 Commerce Drive, Baltimore, MD 23239. Its employer identification number is 69-7414447. It
Susanna is single with taxable income in 2018 of $185,000 of which $130,000 is attributable to her consulting sole proprietorship. She paid W-2 wages of $60,000 to her employees. Compute her
In 2018, John is single and is the owner of a proprietorship with $650,000 of gross income and $970,000 of deductions, resulting in a $320,000 loss for the year. How much of this loss can John deduct
Although partners can generally deduct their share of losses from a partnership, what four things can limit their ability to deduct these losses on their current year’s tax return?
What is the purpose of the qualified business income deduction? Explain how it is calculated.
Describe the new limitation for net business losses. What are the threshold amounts for 2018?
Explain the principal difference between an LLP and an LLC.
William and Joan form an S corporation with William owning 30 percent of the stock and Joan the remaining 70 percent. Joan contributed $80,000 cash and services valued at $4,000. William contributed
Using the information in question 3, what is Joan’s basis in her partnership interest at year-end?a. $140,100b. $120,600c. $110,100d. $99,600
William and Joan form a partnership with William having a 30 percent interest and Joan the remaining 70 percent. Joan contributed $80,000 cash and services valued at $4,000. William contributed
Refer to the information in question 1 and assume the entity is an S corporation. What is the corporation’s net income excluding separately stated items?a. $22,600b. $22,300c. $21,800d. $21,600
Lauren Cooper had a beauty shop in the basement of her home. During the current year, she had gross receipts of $32,000. She spent $3,500 for supplies, paid an assistant $4,200, incurred allocated
How does a private foundation reduce the excise tax on a prohibited transaction?
What distinguishes a private foundation from other tax-exempt organizations?
What are at least three examples of prohibited transactions?
Distinguish between an unrelated business and a related business for an exempt organization. Suggest examples.
Why is an exempt organization taxed on its unrelated business income?
What alternatives does the federal government have when an exempt organization engages in a prohibited transaction?
What can cause an exempt organization to lose its exempt status?
Comprehensive Individual Return Problem. Cletus and Josepha Mayor have been married for twelve years and currently live at 2907 Seven Oaks Lane, Columbia, SC 29210. Their Social Security numbers are
Locate and print Form 4684 (Casualties and Thefts). Enter the following information and complete the form to the extent possible: Howser Corporation, a calendar-year corporation, discovered in
Jenkins Corporation had $675,000 of taxable income for 2017 and $575,000 for 2018. What is the minimum amount that it must submit for each estimated quarterly tax payment to avoid any penalty for
The Falcon Corporation has $68,000 in taxable income for 2017. Its accountant uncovered $87,000 in net positive adjustments and $2,000 of preference items for its alternative minimum taxable income.
Mondial Corporation’s financial accounting records show it had gross revenue of $980,000, cost of goods sold of $420,000, operating expenses of $380,000, and $4,000 of dividends received from a
Donut Corporation has $400,000 of taxable income for 2018. What is its net tax liability if it has a $120,000 general business credit available?
What is a corporation’s income tax if its taxable income is $14,000,000:a. For 2017?b. For 2018?
The Jingle Corporation has income from operations of $459,000. It has dividend income of $68,000 from a corporation in which it owns 5 percent.a. What is the corporation’s taxable income for
The Crane Corporation issues $1,500,000 in bonds with a 7.5 percent interest rate. If its tax rate is 21 percent, what is its after-tax cost of the debt?
The Little D Corporation has $150 in current earnings and profits and $100 in accumulated earnings and profits. It makes a $400 distribution to its sole shareholder whose stock basis is $100. What
Beggin Corporation had $100,000 of regular taxable income in 2017. It had $40,000 of positive adjustments and a $50,000 preference item. What was the corporation’s alternative minimum tax liability
Walter Corporation reports $500,000 of taxable income for 2018. Determine its book income if tax depreciation was $15,000 more than book depreciation, its deductible business meal expenses were
Refer to the information in the previous problem. What is Glass Corporation’s income tax liability for 2018?a. $17,640b. $20,790c. $25,200d. $32,760Information from Previous problemThe Glass
The Glass Corporation has $156,000 of income from operations. It has a $21,000 capital loss and a net operating loss from the prior year of $36,000. What is its taxable income for 2018?a. $156,000b.
What does continuity of interest mean?
Which reorganization is used by a corporation filing for bankruptcy?
If a corporation changes its state of incorporation, what type of reorganization is it?
If a corporation changes its name, what type of reorganization is it?
Describe the three types of divisive reorganizations.
Which reorganizations allow the shareholders to divide one corporation into two or more corporations?
When does a shareholder recognize gain if he or she participates in a reorganization?
When does an acquiring corporation in a reorganization recognize gain?
Which reorganizations may use a subsidiary to acquire the assets or stock of another corporation?
Which reorganizations entail asset acquisitions?
These questions require answers that are beyond the material that is covered in this chapter.What policy reason do you think explains why losses on the personal-use property of individuals are
The Timberlake Corporation has an opportunity to sell its manufacturing facility to Carroll Corporation for $4,500,000. The property has a basis of $2,000,000, and the prospective purchaser is
Kelly was active in the market, buying and selling stocks for her own account. Below are a series of transactions Kelly initiated during the last quarter of 2018:The XYZ stock sold on 11/01 had been

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